Combining the leading online retail company with a respected grocer is bad news for competitors such as Walmart, Kroger and Target. Ladd, who also worked on supply chain, logistics and delivery during his three years at Amazon and is now a strategy and supply chain consultant in the grocery industry, predicts Amazon will rapidly gain market share against these companies over the next few years.

Ladd predicts Amazon will pass Kroger to become the number two grocer in the U.S. by 2025, and surpass Walmart to claim the number one spot some time between 2027 and 2030. To get there, Amazon will have to figure out how to streamline Whole Foods’ operations, open new stores — both under the Whole Foods flag and its own — and grow its distribution footprint.

Brittain Ladd.

Amazon announced the $13.7 billion acquisition of Whole Foods, its biggest deal ever, last month. During his time at Amazon, Ladd said, he recommended the company acquire a grocer such as Whole Foods or HEB. Not only does the move dramatically expand Amazon’s physical retail footprint — Whole Foods operates 465 stores in North America and the United Kingdom — but even more important, Ladd tells GeekWire, Amazon is gaining a wealth of knowledge and data about the grocery industry, something it lacked as it tried to grow AmazonFresh.

With Whole Foods in its pocket, Amazon’s online grocery business is poised to take off. Ladd described how Whole Foods can help Amazon gain customer trust, and how that will help both its physical and online retail sides.

Amazon can offer grocery customers a greater value proposition than stand-alone grocery retailers like Albertsons and Kroger and even Walmart. Amazon will leverage their physical stores to gain trust with consumers that Amazon can offer the freshest of fresh fruits, vegetables, meat, milk, eggs, dairy and baked goods. In turn, Amazon will prove to consumers that if they order groceries online for delivery, the quality and freshness will be the same. In addition, Amazon will educate and incentivize customers to turn to Amazon for all of their retail needs such as shoes, apparel, electronics, auto parts, furniture and even appliances. In essence, what Amazon can offer is an endless retail aisle capable of meeting the needs of all customers.

Ladd said Amazon should let Whole Foods operate independently for at least the next year or so. In that time, Amazon can learn more about the grocery business from Whole Foods and take a hard look at Whole Foods’ supply chain and operations. The grocer was struggling, and changes will need to be made.

One thing Ladd doesn’t expect to see is the implementation of the Amazon Go checkout-free technology as it exists today in Whole Foods stores because they are just too big. But the technology could come into play with the 365 by Whole Foods stores, a concept Amazon could look to expand.

“Once Amazon has a better understanding of current state operations, I anticipate that Amazon will develop and begin to implement the Whole Foods future state, which will include expanding 365 by Whole Foods to go after Walmart and Kroger shoppers as well as compete against Lidl and Aldi,” Ladd said. “365 by Whole Foods also allows Amazon to stock store shelves with some of their own private label products.”

The check stands at the 365 by Whole Foods Market before it opened in Bellevue, Wash., in September 2016. (Kurt Schlosser / GeekWire)

Ladd went on to describe how Amazon might grow its grocery operation in the future, and the challenges it will face. To reach the top of the grocery mountain, Amazon will have to expand its footprint, through new Whole Foods stores as well as building out more locations for its Amazon Go and AmazonFresh Pickup concepts. Ladd believes Amazon will at some point rebrand Whole Foods to focus more on Amazon.

Amazon will also open additional stores throughout the United States in order to create an ecosystem of stores capable of meeting the needs of the majority of Americans. Instead of just building Whole Foods stores, Amazon will strategically use different formats to ensure they can serve the most customers. For example, Amazon Go, Amazon Fresh Pickup, and multi-format stores will all serve a role in the Amazon grocery ecosystem. Amazon will have to design and build additional distribution centers focused on consumables, especially fresh fruit, produce, meat, milk, eggs, and dairy. Finally, I believe at some point in the near future Amazon will rebrand Whole Foods to place the focus on the Amazon brand.

Turning to Amazon’s rivals in the grocery industry, Ladd suggested further consolidation is necessary if they want to compete with the Amazon-Whole Foods alliance. Ladd recommended a merger between Target and Kroger to shore up Target’s grocery operations. In such a situation he recommended a couple of different possibilities like building mini Targets into Kroger stores, or the two companies acquiring a company like Instacart for delivery.

“From a strategy perspective, Walmart must do something dramatic to change the entire dynamic within retail,” Ladd said. “Therefore, based on my analysis and experience, I recommend that Walmart divest Sam’s Club and then acquire Costco. Walmart/Costco/Jet has an ability to challenge Amazon on a level never before seen.”

Nat Levy is a staff reporter at Geekwire covering a variety of technology topics, including Microsoft, Amazon, tech startups, and the intersection of technology with real estate, courts and government. Contact him at nat@geekwire.com and follow him on Twitter at @natjlevy.

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